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Business Mentor Ely

Client Acquisition Cost

Obviously all businesses need customers, but not just customers, we need profitablecustomers.

Marketing is an investment NOT an expense so when you are marketing you are basically ‘buying’ customers, a simple example would be: you run an advert for say £500 and get 50 calls and 10 sales so you’ve spent £50 per new customer.

So this is your ‘acquisition cost’ or ‘cost per sale’ i.e. it’s how much it costs you to buy a new customer. Take that one step further and you got 50 enquiries or leads so your ‘cost per lead’ was £10 (£500/50).

If you don’t already know these numbers you should do!

Let’s follow the above example and pretend it’s a restaurant, let’s also assume each person coming in spends £50 on a meal. So how much are they making from each customer? Well not a lot, in fact nothing – they losing money. It cost £50 to get them at the table, say £15 for food and drinks, £10 for staff and £5 for overheads, so all up they spent £80 to get £50……….not a great investment and one with a fairly limited lifespan!

In other words, all 10 of these new customers generated by the ad were on average loss making.

So, how can we turn them into a profitable customer?

1.   Better marketing. Create a better headline, a better offer and make sure we are targeting our audience. From there we should be able to get a much better response, it’s not unheard of to double or triple advertising responses with just a few simple changes. So let’s look at the numbers if we doubled the enquiries. Now we get 100 enquires and the cost per lead goes down to just £5 each. That’s a good start and assuming the other numbers stays the same, we are down to just £25 cost per sale and thus £55 spent for £50 coming in. Still more work to do, but we’re on track.

2.   Next we can work on getting more of the callers to come in and buy. Boosting your conversion rate can be as simple as measuring it. So what if instead of 1 in 5 (10 out of 50) coming in we could get 2 in 5? That means we are up to 40 people booking in and buying from you. Your acquisition cost has now plummeted and your £500 advert is bringing you 40 buyers at a cost of just £12.50 each. So now when we do the maths our marketing is starting to make a profit on every new customer, £42.50 out for £50 in. Boom!

3.   Next we need to get them spending more every time they buy from us. Instead of £50 each time, how can we work on raising sales, suggesting other items, a better wine list etc. all these ideas you can sit down now and work on. What else can people buy?

4.   Finally we need to get people to come back again and again. Collect their details and work your database, perhaps send them a monthly newsletter, special offers, even a simple thank you card. Give them a plenty of reasons to return.

No matter what you do remember you are buying customers. And once you’ve got them keep them for as long as you can. Good service only goes so far, from there it’s up to you and your marketing to get them back and give them reasons to buy from you again and again.